KOLKATA: Russia’s Sistema JSFC said telecom department’s (DoT) nod for the ongoing merger process of its India unit with Reliance Communications (RCom) is likely in the fourth quarter of 2016, post-conclusion of the next spectrum auction.

“Due to the new frequency auction announced by the Indian government, all consolidation transactions have been suspended until the auction’s completion, with the final DoT approval of the transaction with RCom expected in the fourth quarter of (calender) 2016,” Sistema JSFC said in an official statement Tuesday.

The Russian conglomerate, however, expects statutory approvals from the Rajasthan and Bombay High Courts next month for the ongoing merger process.

“As of mid-August 2016, the (ongoing merger) transaction has been approved by Securities & Exchange Board of India, the Competition Commission of India, the tax authorities as well as shareholders and creditors of RCom and Sistema Shyam Teleservices,” Sistema JSFC said. Sistema Shyam (SSTL) is merging its wireless business into RCom in a deal which will see the promoters of the SSTL getting around a 10% stake in RCom.

Sistema’s announcements coincided with its India unit, Sistema Shyam Teleservices, reporting an 11.8% on-year rise in revenue to 3.44 billion roubles (Rs 355 core) in the April-June period of 2016, helped by growing data revenues and data subscriber additions. Sistema Shyam’s data customer base rose to 2.02 million during the quarter from 1.9 million in the earlier corresponding period.

Sistema’s India unit, which operates under the MTS brand in India, narrowed down net loss to 1468 million roubles (Rs 152 crore approx) in the second quarter to June from 1685 million roubles (Rs 174 crore) in the year-ago period. The loss numbers, however, are appropriated figures, attributable to parent Sistema JSFC based on its 56.68% stake in Sistema Shyam.

Back in June, Sistema had also announced it would buy the Russian government’s 17.14% stake in Sistema Shyam.

Incidentally, the ongoing RCom-Sistema Shyam merger process also faces a crucial test on October 19 which may offer a solution to the latter’s continuing legal tussle with the DoT over levy of spectrum contiguity charges.

Though the Telecom Disputes Settlement & Appellate Tribunal (TDSAT) had ruled in Sistema Shyam's favour in March by striking down such charges imposed by the government, the telecom tribunal’s judgement was challenged by DoT in the Supreme Court in May, and the matter is now slated to come up for a final hearing on October 19.

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RCOM-Sistema Shyam Merger: Here’s everything you need to know

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RCom-Sistema-Merger

Marking the first major acquisition in recent times, Reliance Communications (RCom), India's fourth-largest telecom operator, is acquiring Russian conglomerate Sistema 's Indian telecom unit in an all-stock deal that will create an operator with 118 million subscribers.

The merger with Sistema Shyam Teleservices will future-proof RCOM's 4G LTE play in the most efficient 800/850 MHz spectrum band, acknowledged as the best-in-class standard for data services. In Delhi, Gujarat, Tamil Nadu, Karnataka, Kerala, UP (West), Kolkata, West Bengal and Rajasthan.

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Of the 22 Circles, RCOM now has future-proofed itself and has spectrum for a minimum of 15 years: AS-NE: 800/850 MHz band; Orissa: 1800 Mhz band; & MP-HP: 900 MHz band (all for 20 years); Mum-JK-Bihar-Rajasthan-Punjab: 2100 Mhz band (all for 15 years); 8 Other Circles: 18 years. Only AP-MH-HR-UP(E) are expiring in 2021 and RCOM has 6 years (and therefore 6 auctions) to decide on its strategy.

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As per merger agreement, SSTL is paying off all its existing debt on its own prior to Closing. All liabilities left behind with SSTL; nothing whatsoever comes to RCOM

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RCOM said that only DoT installments for spectrum purchased in 2013 auctions to be paid @ Rs 400 crore a year (including interest) for 10 years. As this is spread over 10 years, no cash outflow burden on RCOM

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The merger will create a valuable data-heavy business of around 9 million subscribers and Rs 1,500 crore in annual revenues.

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Capex and Opex synergies: Opex savings are typically 40% of revenues when assets and distribution, etc. are duplicated. On revenues of Rs 1,500 crore, therefore, Opex Synergies will see up to Rs 600 crore flowing directly into the EBITDA.

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The merger will result in significant capex and opex synergies will also accrue to RCOM as their will be duplication of assets, and SSTL has proven and demonstrated strengths in the Indian data market.

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With this new spectrum coming to RCOM, in RCOM's 8 expiring CDMA Circles, the company will not have to buy spectrum come 2021. This adds up to a saving of Rs 15,000.
This additional spectrum also gives RCOM to flexibility to migrate its CDMA customers to LTE (on MTS' spectrum), while sharing its own 800/850 MHz holdings with Reliance Jio Infocomm.

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The merger eliminates need for future cash outgo from RCOM for acquiring 850 MHz spectrum in 8 circles in 2021, on expiry of its own spectrum.

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After the completion of merger, there will be no Board seats, no veto rights to SSTL - continuity of management.

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RCOM said that the merger will create a highly value-creating proposition for the company and its stakeholders

Jio’s Rs 2,399 annual plan offers 2GB per day data that costs effectively Rs 200 per month. It also offers unlimited voice and SMS. Airtel and Vodafone Idea’s Rs 2398 and Rs 2399 annual plans, on the other hand, offer 1.5GB per day data along with unlimited voice and SMS